[Edaily Reporter Jang Young-eun ] While economic indicators suggest that inflation is stabilizing, data shows that the number of items experiencing price increases is actually rising. This comes as an indicator measuring how widely inflation has spread across various items approaches a record high. It also suggests that the recent inflationary trend is not limited to specific items but has spread quite broadly across the economy as a whole.

◇ Price Diffusion Index Hits Highest Level Since the Pandemic

According to the Bank of Korea on the 6th, the Price Diffusion Index for last month stood at 65.6 for the overall Consumer Price Index (CPI) components and 68.9 for core items. This marks the highest level since 2010, excluding the pandemic period.

The Price Diffusion Index is calculated by assigning 1 point to each item in the Consumer Price Index (CPI) whose price rose by more than 0.05% compared to the previous month, and then summing these points weighted by their respective weights. A higher Price Diffusion Index indicates that a greater number of items saw price increases compared to the previous month.

In fact, while the overall Consumer Price Index for July rose 2.8% year-over-year—showing a slowdown compared to June (3.1%)—core inflation, excluding volatile food and energy prices, actually increased to 2.6%, a larger rise than the previous month’s 2.5%. Although the rise in consumer prices slowed due to the government’s efforts to curb inflation—such as the maximum oil price cap, discounts on agricultural, livestock, and fishery products, and a freeze on public utility rates—overall inflationary pressure remained.

Jo Jae-woon, an analyst at Daishin Securities, commented, “The slowdown in the overall consumer price inflation rate was driven by items excluded from the core inflation calculation, such as electricity, gas, water, fresh food, and transportation costs,” adding, “While headline inflation has declined, underlying inflationary pressure has actually intensified.”

◇ Rising Costs and Economic Recovery… BOK “Monitoring Core Inflation”

Inflationary pressure is mounting from both the cost and demand sides.

First, on the cost side, import prices have surged significantly due to the strong won and high oil prices, leading to a considerable accumulation of inflationary pressure. The year-over-year increase in import prices in won terms jumped from 7% in the first quarter of this year to 22.2% in the second quarter. Even excluding energy, the import price inflation rate for the second quarter remained high at 17.4%. The sharp rise in memory semiconductor prices is also increasing the incentive for companies to raise their product prices.

Demand-side inflationary pressure resulting from an improving economy is cited as a major driver of inflation. This is because even if there are factors pushing prices up—such as rising costs—prices will not rise significantly if demand remains sluggish. This is also why the inflation diffusion index tends to rise when domestic demand, such as consumer spending, improves.

The Bank of Korea assessed that improved income conditions resulting from the strong semiconductor market are likely to gradually increase demand-side inflationary pressure. BOK Governor Shin Hyun-song has also highlighted the growth in Gross Domestic Income (GDI), which is far outpacing that of Gross Domestic Product (GDP), noting that future increases in purchasing power could lead to inflationary pressure. Service prices, which are sensitive to demand conditions and tend to remain high once they rise, showed a sharp increase last month, led by personal services (3.5%) and food and lodging (2.7%).

A BOK official stated, “Amid high uncertainty regarding international oil price movements in the second half of the year and beyond, the upward trend in prices for industrial products and personal services is expected to widen, causing the inflation rate to remain above the target level (2.0%) for some time,” adding, “We are closely monitoring core inflation trends.”

If inflation remains stubbornly high, it is highly likely that the BOK’s policy rate will remain at a tight level for a considerable period. In the minutes of last month’s Monetary Policy Committee meeting recently released, one committee member noted, “Just as much as the short-term rise in inflation, there is concern that inflationary pressures may persist at a high level for a considerable period, potentially causing inflation to become ‘de-anchored’ from the Bank’s 2% target.” The member urged, “We must note that the base effect of oil prices—a downward pressure on inflation in 2027—could disappear by 2028,” a remark that suggests the Bank of Korea may maintain high interest rates for a considerable period.